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Privatisation policy is now in doldrums. The Privatisation Commission has not been following uniform rules for handing over the units to the highest bidder.

In Millat Tractors one set of employees were rejected, while the offer of a mixture of employees and overseas investors was accepted. But on the other hand in National Fibre the employees bid was rejected to give the project to the highest bidder. Again walking criss-cross the Privatisation Commission accepted the employees buy-out and rejected the highest bid for Pakistan Switchgear.

In the case of most prestigious unit-Pak-Saudi Fertilizer even the letter of intent has not been issued although the Cabinet Committee had instructed it to do so. Its defence is that the employees have a first right of refusal. But the issue is can any group with a nominal employees representation qualified to claim the employees buy-out-rights?

The highest bidders were the Pakland Cement Ltd. who offered Rs. 3618 million at Rs. 67 per share. The employees group were the second highest bidders who came up with an offer of Rs. 3186 million at Rs. 59 per share. The man behind the second group was Junaid Makhdoomi, reportedly a close friend of the chairman of the Privatisation Commission. The other sponsors with him are Zahoor Ahmed Khan (ex-Chairman NFC) and Rafiq Chaudhry (Managing Director of PSFL).

At its meeting held on Oct 21, the Cabinet Committee decided to privatise PSFL to the highest bidder. The Cabinet Committee also directed the Commission not to allow any premium to workers bidding for the project in partnership with outside investors. In a subsequent meeting, the Cabinet Committee is believed to have confirmed the approval of the highest bid and issuance of letter of intent. But despite this fact, the Privatisation Commission has not cared to issue the Letter of Intent to Pakland. Subsequently the highest bidders sought intervention of the Prime Minister, the Finance Minister and the Privatisation Commission itself for issuance of the letter of the intent, but in vain.

The highest bidder agreed to offer upto 25 per cent equity in the company to the employees and it has also arranged with its financial advisors to make the entire payment in lumpsum. Further the highest bidders representative signed the bid unconditionally whereas the second bidder's bid is conditional promising 74 per cent payment on floatation of a modaraba.

Another case also shows how the Privatisation Commission is messing up the privatisation process in the country. When bids for disinvestment of cement units like Mustahkam, Gharibwal and D.G. Khan were invited, M/s Calicon (Pvt) Ltd. were declared highest bidders for D.G. Khan Cement Ltd. and Gharibwal Cement Ltd. The letters of intent was also issued. When the highest bidders contracted the Privatisation Commission for the joint audit of the accounts of the companies and a draft agreement in order to seek foreign investment, they were given one month's time to deposit the bid money. The highest bidders wanted the audit because the cash flow shown in Gharibwal Cement Ltd was to the tune of Rs. 10 crore but after the bids were made an amount of Rs. 8 crore out of the total cash flow of Rs. 10 crore were issued as dividend. This was contrary to the terms. Foreign Financiers of the Calican Ltd. wrote a letter to the Chairman of the Privatisation Commission saying that the process of privatisation as being implemented by Pakistan was faulty. The foreign sponsors of the Calican Ltd. pointed to the technical hitch. They objected to the fact that Calican Ltd. have been required to put 26 per cent down payment even before they have reached an agreement with the sellers for purchasing the projects.

More recently, the Privatisation Commission has issued a letter of cancellation of the letter of Intent just for seeking joint audit of the accounts of the companies the Calican Ltd. wanted to purchase.

The cabinet committee at its meeting held recently decided to give the offer for two cement factories to the employees. Under the law, the right of matching the highest bid is available to the ex-owners and not to the employees.

In the case of Maple Leaf and Pak-China white cement the units were given to parties who did not even participate in the tender. The only major project handed over to the private sector, besides the two banks, is Al-Ghazi Tractor on 60 per cent payment after seven months of negotiations. Fazal Ghee has been sold out without even taking the guarantees for liabilities and balance payments.

Of the 335 bids received by the Privatisation Commission, only 24 were found above the reference price. But the Commission the reports show, has failed to deliver even the letter of intents to all the highest bidders. Whatever reason it may give for the delay but the growing feeling is that only the favoured few have managed to get these letters even though more than two months have passed since the bids were opened in Islamabad.

Dr. Mahbubul Haq, former Finance Minister, has suggested that a white paper on the government programme of privatisation should be prepared and presented to parliament for achieving a natinal political consensus.

According to him the privatisation programme should have six elements. First, the objective should be equity and efficiency. The onus is on the government that the new owners run the units better and more profitably and that there is no concentration of wealth so that the era of sixties would not be repeated.

Secondly, it should be transparent. It shoudl be and open process so that allegations from any quarters are obviated. Through stock exchange, it would ensure wider ownership.

Thirdly, it should identify clearly the units and corporations which will be sold. He strongly opposed the proposed privatisation of the PTC, which was highly profitable, and also of remaining banks and DFIs. His argument was that telecommunications is giving a profit of Rs. 1000 crore annually besides earning Rs. 300 crore in duties. They 37 per cent return on equity makes it very profitable. There might be some deficiencies. What is needed is not privatisation, but better management.
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Publication:Economic Review
Date:Dec 1, 1991
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